__economic thinking about sports__

Tiger Financial Fallout

2009 December 11

by Brian Goff

How much will Tiger lose in income from recent negative publicity? This has been subject of considerable speculation around our hallways and on the web. In part, Tiger stands to lose a lot of money because of such a huge lead on everyone else. Si.com puts his pre-”event” endorsement income at $92 million, about double of Phil Mickelson at $46 million and over three times the $28 million for third place LeBron James.

Forbes.com provides a breakdown of his biggest deals. Of that $92 million, a third comes from Nike. Given the length of that relationship, Nike’s past profitability from it from clubs and beyond, and Tiger’s likely long term performance, one has to think his money from that source is safe. Other endorsements, however, from organizations not so player-committed and not in the sports business, are more in doubt. Gatorade (Pepsico) dropped its $8 million deal with Tiger, but with its venture with him lagging, it’s hard to separate cause and effect. Nonetheless, in a pre-, post-event analysis, this counts as a net loss of nearly 10% until he picks someone else up.

Most sports-savvy econ and marketing people in my hallways don’t expect any new deals for Tiger over the next couple of years, minimum. I did a back of the envelope present value calculations of his lost endorsement income based on these three scenarios (all discounted at 5% per year):

Scenario 1 (No-”Event”): endorsement income grows at 7% per year for 10 years;

Scenario 2 (Post-Event Big Impact): endorsement income falls by 25% of 2009 value in 2010, by 50% in 2011, and then starts growing by 10% per year thereafter;

Scenario 3 (Post-Event Moderate Impact): endorsement income falls by 25% in 2009, remains stable for 2 years, and then starts growing by 10% thereafter.

Under Scenario 1, Tiger earns $1.02 billion over 10 years. In Scenarios 2 and 3, this drops to $521 and $692 million or losses af about $500 million and $300 million. Big losses in absolute income, but from an enormous starting value.

The likely beneficiaries are the sporting celebrities down the list and non-sporting celebrity endorsers. Here’s speculation by Forbes.com Michael Ozanian who thinks someone like Jimmie Johnson (whose endorsement figures have been surprisingly low) stands to benefit. However, one wonders the extent of overlap in NASCAR and Tiger-related endorsement audiences. Gatorade might be one item with substantial overlap.